Hundreds of millions of dollars were dumped on the state Department of Business, Economic Development and Tourism, which now has one year to spend most of it.

The mysterious and much-criticized budget process used by House and Senate leaders in the final days of session this spring may have poured more money into the state Department of Business, Economic Development and Tourism than the department can readily handle.

The state began the session with a monumental $2 billion budget surplus, and lawmakers were determined from the start to spend that windfall on one-time costs, such as construction or maintenance projects.

The budget worksheets for the next two years show that much of the extra money was funneled into complex and pricey initiatives in DBEDT, and the department may soon find itself swimming in cash.

For example, the House inserted $100 million into the DBEDT budget to extend and expand a program to loan money to lower-income homeowners and renters to help them install solar energy and battery systems in their homes. House Speaker Scott Saiki has been an advocate for that initiative.

Members of the House mingle and snap photos on the last day of the 2023 legislative session. Lawmakers directed hundreds of millions of dollars in cash to the Department of Business, Economic Development and Tourism that must all be spent or encumbered by June 30, 2024. (David Croxford/Civil Beat/2023)

The Senate, meanwhile, pumped cash into initiatives backed by Senate Ways and Means Chairman Donovan Dela Cruz, including $90 million for a complicated project to provide recycled water to irrigate farm land in the area.

Correction: An earlier version of this story incorrectly stated the farm land being irrigated is in Dela Cruz’s Senate district. The farm land is in another Senate district.

Another $200 million was directed to the Hawaii Community Development Authority, which is also under DBEDT, and much of that money is backed by Dela Cruz.

That includes $86 million to plan and install infrastructure such as utilities in the Iwilei-Kapalama area to encourage development of housing along the rail route being developed in Honolulu. Another $60 million was routed to HCDA to upgrade the electrical grid at Kalaeloa.

‘A Race To June 30, 2024’

If the agencies fail to award contracts to execute that work or otherwise encumber the money by June 30, 2024, the appropriations expire and the money will lapse back into the state general fund.

Some of those initiatives were announced in a news release during the session, but that distribution of hundreds of millions of dollars drew sharp criticism on the last day of this year’s session.

Angry House lawmakers pointed out that even members of the powerful House Finance and Senate Ways and Means committees could not possibly have known the complete details of the budget when they unanimously approved the spending plan in preliminary votes on the evening of April 25.

In fact, House Finance Chairman Kyle Yamashita confirmed on May 4, the last day of the session, that days after those conference committee members voted, new language was negotiated and inserted into the budget allocating $200 million for Gov. Josh Green to use as he sees fit.

“We’ve got a year, and it’s a tall order, but we’re going to try to do our best.”

HCDA Executive Director Craig Nakamoto

Apart from the opaque budget process, the startling surge of funding into DBEDT raised questions about how the various agencies within the department can possibly spend the money they are being given before the appropriations expire.

Construction projects are normally funded with borrowed money that is raised by issuing state bonds, and state departments are ordinarily given several years to award contracts to commit or “encumber” that money. In this case, the cash appropriations to DBEDT are good for just one year.

For example, the new budget gives the Agribusiness Development Corp., another agency under DBEDT that Dela Cruz has championed, more than $106 million for the fiscal year that begins July 1.

That is a huge increase for an agency that had a staff of just 14 last fiscal year. By comparison, all of DBEDT with its nearly 200 permanent positions was budgeted for just $17.8 million this fiscal year.

Senate Ways and Means Committee Chairman Donovan Dela Cruz backed many of the initiatives included in the DBEDT budget. (David Croxford/Civil Beat/2023)

The budget itself does not specify exactly what that $106 million for ADC is to be used for, but the budget worksheets explain that $90 million of that money is earmarked for “water infrastructure.” Another $3 million of the cash is designated for “land acquisition.”

Dela Cruz declined to explain those appropriations or discuss the budget on the record.

Irrigation And Solar Support

The ADC said in a written response to questions that the $90 million is earmarked to build an irrigation project that will recycle treated effluent from the Wahiawa Wastewater Treatment Plant by distributing the water to farmers. That water from the Wahiawa plant is currently discharged into Lake Wilson.

That project involves building a 14 million gallon reservoir on ADC lands to hold treated effluent, and constructing a pumping and piping system that includes 20-inch recycled water lines under Lake Wilson. That system will transport water to distribute it to former pineapple lands that ADC owns in Wahiawa.

Assuming Green releases the funding for the project, ADC said it will likely go out for bid next spring. But that is cutting it close, considering the cash appropriation will expire on June 30, 2024.

Another major DBEDT cash budget item was the $100 million appropriation for the Hawaii Green Infrastructure Authority to make loans to help lower-income homeowners and renters install solar systems to generate electricity for their homes

The idea there is to pump more money into that program that helps residents buy or lease photovoltaic solar systems for their homes. That was backed by Saiki, who began promoting the idea even before the session began.

Gwen Yamamoto Lau, executive director of the authority, said the authority’s loan program was initially funded in 2014 with $150 million in borrowed money that was financed with state bonds. Over the years the authority has made about 1,800 in loans to small businesses, nonprofits and residents, she said.

The authority has about $12 million left from that original funding, and “we’re all very excited about getting additional funds to continue our work,” she said.

The Green administration had requested $150 million in bond funding to continue the program, but lawmakers instead provided $100 million in cash. Bond funding would have had a longer shelf life, and the cash appropriation expires on June 30, 2024.

Yamamoto Lau said that with some leveraging, the $100 million could be used to finance 2,000 to 6,000 systems for families who earn 140% or less of the area median income. But the money is not encumbered until the loans are approved, so “it’s a race to June 30, 2024,” she said.

The Hawaii Community Development Authority faces an even bigger time crunch. The Legislature’s new budget appropriates about $200 million in cash to HCDA for various projects, money that all expires on June 30, 2024.

Housing Infrastructure

The largest piece of that is nearly $90 million to design and develop housing infrastructure for housing along the rail line in the Iwilei-Kapalama area, and to prepare a master plan for infrastructure development in East Kapolei.

The city expects more than 12,000 new housing units may eventually be developed in Iwilei-Kapalama alone, but private developers need to have that infrastructure in place to develop affordable homes on state and city lands in the area.

HCDA Executive Director Craig Nakamoto said HCDA was tasked last year in Act 184 to take on infrastructure development such as sewer, water and electricity along the entire rail corridor.

The budget funneled $90 million to design and develop infrastructure to allow housing development along the rail line in Honolulu. (David Croxford/Civil Beat/2023)

The $90 million in next year’s budget was advanced by Dela Cruz’s Ways and Means Committee “with our input,” Nakamoto said. An environmental impact statement is now being developed for the Iwilei-Kapalama area, and should be finished soon, he said.

Another $35 million was earmarked for HCDA to design and build an internal roadway on a 20-acre parcel in East Kapolei that the University of Hawaii system intends to develop into a “university village,” Nakamoto said. That project was also part of a package advanced by Dela Cruz, he said.

HCDA asked for another item, which was nearly $60 million to upgrade the power grid at Kalaeloa and on Saratoga Avenue. He said the agency is working toward having those projects ready to go out to bid.

All of that amounts to an extraordinary amount of work for an agency with a staff of just 23 people and a deadline of just over a year to encumber all of that money.

“I’m grateful for the Legislature to fund this kind of amount to an agency like ours,” Nakamoto said. “Sometimes you can’t control the method of financing that they give the money to you.”

“It’s not an easy thing,” he said. “We’ve got a year, and it’s a tall order, but we’re going to try to do our best. I don’t want to fail.”

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